In This Article:
Westports Holdings Berhad (KLSE:WPRTS) will increase its dividend on the 22nd of August to MYR0.0819, which is 19% higher than last year's payment from the same period of MYR0.0691. This will take the dividend yield to an attractive 4.1%, providing a nice boost to shareholder returns.
View our latest analysis for Westports Holdings Berhad
Westports Holdings Berhad's Dividend Is Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment was quite easily covered by earnings, but it made up 98% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
EPS is set to fall by 0.2% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 74%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Westports Holdings Berhad's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of MYR0.104 in 2014 to the most recent total annual payment of MYR0.144. This means that it has been growing its distributions at 3.6% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
The Dividend's Growth Prospects Are Limited
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings has been rising at 4.7% per annum over the last five years, which admittedly is a bit slow. Growth of 4.7% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.